Saturday, February 04, 2017

Big steps for Elite Airways, and Newport News/Williamsburg International Airport (KPHF)

Elite Airways announced Wednesday morning that it will provide nonstop service from Newport News-Williamsburg International Airport to Islip, N.Y. and Newark, N.J. starting in March. Fares for both destinations will start at $99. John Pearsall, President of Elite Airways during his speech. 

Elite Airways' jump into the business-travel-oriented Peninsula market represents a big commitment for a fast-growing little airline that is drawing another big undertaking from the Peninsula Airport Commission and local governments.

The Maine-based airline's plan to connect Newport News/Williamsburg International Airport to two metro New York airports that straddle the Big Apple to the east and west marks a major move away from the snowbird business on which it first built its new scheduled air service.

For Elite, it means bringing planes here that aviation consultants estimate can cost roughly $3,750 an hour to fly, as well as all the other costs that go into ensuring that aircraft are in good repair and the hundreds of thousands of dollars invested in fixed costs ranging from crew training to insurance to hangar space.

For the airport commission, Elite also represents a new direction. The commission is buying nearly $400,000 worth of equipment and planning to make its first-ever plunge into handling the terminal side of air service, a line of business executive director Ken Spirito hopes to offer to other airlines, including Delta and American, the two already at the airport.

The commission also plans to spend $300,000 advertising the new service, when it starts, while a regional body funded by seven local governments is ready to make up the difference if Elite's first year revenue falls short of $500,000.

All in all, it's a proposal that would add up to $1.2 million if Elite didn't sell a single ticket, which neither the airport nor Elite think will happen, especially since people were already buying tickets when the airline announced it would delay a March launch date. Elite did so because it was concerned about perceptions of the airport in the wake of Daily Press reports that a commission loan guarantee to another airline two and a half years ago had prompted state Secretary of Transportation Aubrey Layne to yank the airport's state funds.

Elite president John Pearsall declined to talk about the airline's business for this story, but had said earlier that he liked the Peninsula's strong business-travel market.

Airport officials first made their case to him about that business market about a year ago.

They've been looking for a New York-area connection for years.

"Newark — you can almost just call it a service to New York. And Long Island is — you are catering to a different New York population because getting to LaGuardia or JFK or Newark is not that easy," said William Swelbar, a research engineer for the Massachusetts Institute of Technology's International Center for Air Transportation and an affiliate of the school's Global Airline Industry Program. Swelbar has been a consultant to the airport commission.

"Is there a sufficient enough population on Long Island for a small aircraft serving the Hampton Roads-Williamsburg area? My guess is yes, if marketed correctly. Newark, I'm less concerned about," he said.


The Peninsula's promises to Elite add up to a larger potential commitment than Elite has received from other communities it serves, though it is dwarfed by the big bucks that come from the controversial federal Essential Air Service payments, a $275 million program meant to assure service to rural areas.

Elite's first venture into the Essential Air Service arena, an offer to link the Nebraska cities of North Platte and Kearney with 12 flights a week from each, supported by federal subsidies of $4.7 million and $4.2 million, didn't pan out, according to published reports.

But even those sums are dwarfed by the incentives that lured Aer Lingus to the airport in Hartford, Conn. That airport included up to $9 million to offset potential losses in the trans-Atlantic service's first two years of operation, as well as $5 million in marketing funds and waived fees, according to the Hartford Courant.

Nowadays, airport authorities are using incentives more often to encourage business, Swelbar said.

There is no "cut and paste" incentive formula, he said, and every airport authority tries something different. It is not uncommon for incentives to exceed $1 million, he said.

"If you kind of believe you can use your airplane better somewhere else, that's probably what you do because assets are mobile," Swelbar said. "So if they're not satisfied with how the market is developing, it's not uncommon to see someone take the asset and try another city pair."

And, he added, Newport News is anxious to be part of such a pair.

"The folks in Newport News have been very aggressive in using incentives over the years," he said.

Spirito has said airports, especially smaller ones like Newport News, have to offer support in order to woo new airlines. For the airlines, a new market means spending on what Spirito calls a perishable product — the seats they need to fill. If not enough people file in at the gate, there's simply no other way for the airline to make up the loss.

Frederick J. Piccolo, president and CEO of the Sarasota-Bradenton International Airport, said that hasn't been a problem since Elite began its service this past November from the Florida west coast airport to Portland, Maine, and Melbourne, Fla.

The airline has been filling 90 percent of its seats, and its twice weekly flights have grown to five flights during heavy travel times, he said.

The airline "certainly meets the goals and then exceeds them some," he said. "We'd love to see more flights, obviously."

The airport authority, along with Sarasota and Manatee counties, contributed $200,000 in marketing incentives to the airline, Piccolo said.

The airline's airport fees have been waived for the next two years — the most allowed by federal regulations — and will amount to about $1,000 a week, Piccolo said. If the airline operates every week through November 2018, that would amount to about $104,000.

Elite's time at Vero Beach Regional Airport also has exceeded expectations, said executive director Eric Menger. The airline started nonstop flights to Newark in December 2015, then expanded service from two days a week to four, he said.

"There was a pent-up market that they were able to capture," Menger said.

Menger said there's a sizable retired population from New York that has moved to Vero Beach or its surrounding area. And besides tourism, the airline provides a quick link to New York City for business trips that might have otherwise happened over Skype.

"It's almost like we created a little bit of a market now because there's an airline there ... when they might not have otherwise scheduled that trip," Menger said.

The airport authority gave Elite $24,000 in marketing incentives and waived rental fees for one year, which shakes out to about $30,000 to $40,000 in total breaks, Menger said. It has no landing fees currently, he said.

"I like the way that Elite has been growing," Menger said. "They're a small company, they're growing slowly and they're growing carefully."

Elite has struggled in Naples, Fla., where the airport commission is upset by its decision after just a few months to stop direct service to Newark, replacing it with a one-stop, after the airport spent $50,000 on marketing and waived $24,000 in rent. The combination of a seasonal market and more limited local support made that market a challenge, Pearsall has said.

Elite's plan

Small airports — and the subsidies they hand out — have been key to Elite Airways' business plan since it got into the business of scheduled air service in 2014.

Outlining the company's plans to his hometown newspaper that year, Pearsall said he had always had the idea of turning the charter company into a regular airline, hoping to benefit from the incentives smaller airports offer.

"We just needed to find the right city pairs," he told the Portland (Maine) Press Herald.

Pearsall had built the company into a player in the charter market, where what was then a five-jet fleet ferried sports teams and the White House press corps, after the collapse of Primaris Airlines, where he was president and chief operating officer.

Primaris filed for bankruptcy in 2008, court records show. Primaris wasn't alone. The first year of the Great Recession, 2008, was bad for many airlines, even ones much bigger than the two-jet operation. Air Midwest, ATA Airlines, Big Sky, Champion Airlines, Eos Airlines, Frontier Airlines and Skybus Airlines also went to bankruptcy court that year, according to the Airlines for America trade association. Aloha Airlines and Sun Country Airlines made return trips in 2008 — Aloha had filed for bankruptcy four years earlier while Sun Country's first bankruptcy came in 2002.

After an an abortive 2013 feeler in Baton Rouge, La., where the airport promised a two-year waiver of fees and $100,000 in advertising, Elite's first move into scheduled service was a connection between Portland and Melbourne, Fla., about an hour's drive from the tourist mecca of Orlando, according to published reports.

Elite got a taste of the often contentious politics of airport incentives in 2015, when the Mesa, Ariz., airport, in the shadow of Phoenix's giant Sky Harbor International Airport, offered it a $600,000-plus package if it would agree to provide flights to San Diego. Mesa offered a similar deal of revenue guarantees, advertising and waived fees if Elite would serve Salt Lake City, but dropped the offer after another subsidized airline serving the airport complained, according to the Arizona Republic.

The airport figured once Elite was up and running and the fee waiver expired, it would realize about $100,000 a year in revenue. Elite eventually decided against the Arizona business. The other subsidized airline dropped its threat to shift to Sky Harbor.

John Pearsall, President of Elite Airways 

Elite made a point of saying it was not getting any incentives from the airport in Rockford, Ill., when it announced service to Newark and an airport about 50 miles north of Denver in May 2015. It dropped the Newark service in October. It dropped the Colorado service in August, but plans to restart it in May.

June of last year marked its big splash: new twice-a-week service from Islip airport to its home base of Portland, Maine, Myrtle Beach, S.C., and Melbourne, Fla., and new twice-a-week service from the Maine resort town of Bar Harbor to Newark. From those bases, it added one-stop service linking Portland to Myrtle Beach, as well as Bar Harbor to Vero Beach, Fla., and Bar Harbor to Islip.

In July, Elite made a bid for some $700,000 of federal grants to the airport in Charleston, W.Va., proposing service to Florida, but nothing came of that.

Elite began service in July 2016 from Branson, Miss., to Houston and Denver, operating the route on behalf of Great Lakes Airlines, in a seasonal service to that tourist spot.

Elite started as a charter operation in 2006, with backing from a trust for the family of California investor Robert V. Lyle, who made his fortune with a packaging company he sold in 2002 for an undisclosed sum. The Lyle trust owns 60 percent. A trust for California financier Don Hankey and his family owns 25 percent, according to federal aviation records.

Pearsall owns 15 percent of Elite. He is a pilot who worked as a Boeing 757 flight instructor at America West Airlines before going on to found Primaris.

Elite operates 12 planes, and its most recent financial reports with federal regulators show its assets exceeded its liabilities, unlike the airline that operated People Express' planes.

Those reports show Elite had total assets of $12.1 million, mostly its fleet of aircraft, valued at just under $12 million. Its IOUs amounted to just under $11 million.

So far, it has weathered accumulated losses of $3.6 million, and still has a solid net worth, its financial data show.

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